What Are The Unintended Consequences Of Financially Helping Adult Children

Written by admin on December 7th, 2010

Research on the lifestyles of contemporary families has found that today’s older generations are spending the largest amounts of financial resources on adult children. Grown children in many families still stay at home, or are moving back in with the parents because of the lower financial capabilities of the former, and the higher spending power of the latter. Adult children are mainly having trouble setting out on their own due to factors such as the prevalence of high prices of housing and the significant increases in the costs of education, while the relative monetary stability their parents possess enable this cohabitation. Experts also state that this type of lifestyle will become more customary as the baby boomer generation enters mid-life over the coming years.

The cost of education, specifically, contributes to adults having difficulties in moving out and living on their own. Over the past two decades, even the yearly cost of a four-year course in a public college has doubled, while the prices of housing in the same time span have tripled or quadrupled on the average. Overall, the value of the dollar did not even reach double in these two decades, giving rise to the disjoint in resources and capabilities between the two generations. Now, adult children are unable to purchase their first homesteads while their parents, the baby boomers, have much more money to spare.

In spite of the increased spending power of today’s parents, the costs of helping out their adult children are proving to be detrimental to the former’s retirement plans and funding. Some surveys have also determined that the accumulated aid baby boomers give their offspring affect the retirement savings of the latter negatively, although a huge percentage of these parents are unaware of how much they actually spend on children who have moved back home.

What You Can Do to Help

Once you find out that an adult child needs help getting back on his or her feet, or requires a nudge to send him or her off into the world, assess your child’s financial stability and level of responsibility. You may arrive at a crossroads, and consider giving your child more money. Constant handouts upon your child’s demand or requests will teach the opposite of financial responsibility, which is financial dependence.

Talking to your adult child about financial responsibility may be tough, as they may take offense, or refuse to listen to what you have to say. Being firm in initiating such a conversation will prove to be helpful. Start by discussing potential options to resolve their short-term money woes, as well as helping your child create a solid, long-term financial plan and the associated goals or milestones.

If your child chooses to apply for a loan, cosigning it with him or her must be approached delicately. Oftentimes, loan cosigning is a risky endeavor that does not bode well for the cosigner, especially if the other becomes delinquent in keeping up with loan payments. Fundamental financial advice, as well as plain common sense, dictates that you shouldn’t sign your name on another person’s loan (even if it is your child’s loan). If you absolutely have to cosign, understand the risks involved if your kid becomes delinquent in his or her payments. You can take a hit to your credit rating, for one.

You can take your child’s financial education a step beyond, and employ a professional financial advisor whom you can consult with, or hire to directly deal with your child and his or her financial issues. The professional advisor can work with your child and take him or her in as a client, helping organize his or her finances to improve the situation. This step can also teach your child the fundamentals of personal finance, such as investing and budget planning. Hiring a financial advisor can also affect your relationship with your child in a positive way, as he or she may be more open to talking to a professional as opposed to discussing money matters with you.

Many children may already be faced with financial distress, as well as be unwilling to change their lifestyles. Part of their financial and emotional growth depends on leaving the nest, and this difficulty should be seen as an opportunity for learning, not a step down the ladder. Rest assured that educating your adult child about financial stability, whether he or she refuses to leave or has moved back in, will result in more empowered and self-reliant kids. They’ll appreciate your efforts in the long run, too.